Soaring fuel costs will put almost half the bus services on the West Midlands network at risk of being scrapped if a financial life jacket is not utilised. Transport for West Midlands (TfWM) has been engaging with operators about continuing a subsidy scheme to protect bus services and keep fares as low as possible.
Proposal to Extend Subsidy
They are to propose continuing the scheme for the extended period of June 1 to November 30 this year to retain the existing bus network. In the past, West Midlands Combined Authority (WMCA) has provided £50 million per year to avoid 30 per cent of the network being lost. But, as a result of the global conflict, operators say fuel costs have shot through the roof, increasing by around 50 per cent per litre.
Discussions and Cancelled Meeting
Discussions are continuing to establish how much money would be needed for the extension of the subsidy. The issue was due to be discussed at a WMCA Transport Delivery Overview and Scrutiny Committee meeting next week but it has since been cancelled.
The report said: "Without subsidy operators have indicated that up to 49 per cent of the current network is at risk, directly affecting over 65 million (27.25 per cent) passenger trips in the current financial year. Even with a 25 per cent increase in fares the network would reduce by 28 per cent. The resulting patronage loss would be of a similar magnitude due to the two factors of increasing costs and a reducing network."
Verification of Risks
TfWM have been engaged in comprehensive dialogue and negotiations with operators of commercial services to verify the risks stated. This has included a full 'open book' review and challenge process which has considered in-depth the forecast costs and revenue of the operator. This process has confirmed the need for on-going subsidy to maintain a stable network.
The Authority is proposing to retain a subsidy scheme throughout 2026/27 and will require further WMCA Board approvals to implement from April 2027 until services are franchised. This next grant period will be from the 1st June 2026 to 30th November 2026.
Fuel Price Impact
The report added: "Fuel prices began to rise steeply in the UK shortly after the beginning of the armed conflict between the United States, Israel and Iran which impacted the surrounding region from the February 28 2026. Fuel is one of the main variable costs for bus operations and it is estimated forms over 15 per cent of operational costs. Operators in the region have different approaches to how they cost and buy fuel and as a result the level of exposure to changes varies."
Broadly, the operators with the largest operations are less vulnerable to short term changes in fuel prices as they agree fuel costs with suppliers in advance (fuel hedging) to mitigate the risk of rising prices. Other generally smaller operators use companies which provide fuel deliveries, but the price is variable and determined by this market.
Operators have reported the price of fuel has risen by approximately 50 per cent from c. £1.07 to £1.60 per litre (exc VAT). The longer the conflict goes on the more likely that we will also see a cost impact for those operators which hedge fuel as they come around to renegotiate those arrangements.
This increase in fuel costs is placing further pressure on operators which in turn will be reflected on the authority and passengers through a potential increase in contract costs and therefore sustainability, reduction in commercial services, increase in fares and/or requests for an increase of grants when they are next negotiated. These pressures on the authority and operators could lead to service changes later in the year. TfWM are engaged in discussions with local operators to understand the business risk and to the costs of providing subsidised and tendered services.
